The pronouncement earlier this month by Federal Reserve Chairman Ben Bernanke that the recession was "very likely over" was scoffed by some business leaders and economists who believe that unfortunately the economy is not out of the woods as yet. To the Fed Chair's credit, he did note that while the economy is in recovery, the improvement at least for the short term would be moderate.

While the latest consumer spending reports have been positive and home sales have spiked of late due in part to the $8,000 first-time homebuyer tax credit, activity continues to lag in most sectors of the commercial real estate market. The good news, as reported by Real Capital Analytics is that the net lease market is "a relative bright spot in a dim marketplace." The RCA US Capital Trends report indicated that net lease property sales accounted for nearly one-quarter of all retail, industrial and office sales during the first half of this year – "a significant rise over the 10-15% market share averaged over the past few years."

Investors in net lease transactions, specifically, are acting accordingly and are cherry-picking the best deals available. While there is a significant amount of product on the market today and we expect sales activity to increase as the economy recovers, there is definitely a flight to quality in the net lease investment sector at the moment with retail and industrial deals leading the way in the second half of this year.

Today's net lease investment climate is much different than two years ago when there was little inventory available and net lease investors had to jump on just about anything that had some attractive elements to them. Now, there are a lot more choices and alternative investment opportunities than ever before and that is causing many investors to be patient, even finicky, and take the time to make sure they get the right deal that will meet their investment goals.

A large percentage of the active net lease purchasers are seeking those properties that feature high-credit tenants, such as Walgreens, CVS, Lowes, and Tractor Supply on the retail side, that are signed to long-term lease deals in properties located in growth markets. In the industrial sector, net lease investors have closed on a number of FedEx properties of late. Most net lease players are just not interested in doing deals that involve tenants that have marginal credit. If the deal does not involve a publicly-rated company, many of our buyers are doing a significant analysis of the tenant's ability to repay. Obviously, they do not want the tenant to default on the lease.

The smart money in the market right now has also perhaps redefined the long-term lease since many buyers are not finding 10-year lease deals as attractive as they were say two years ago. Now, deals involving 15-year terms or more are the preferred choice.

This change in deal parameters is due in part to the financing market. For example, if an investor puts a mini-perm financing structure on a property of say five years, it is nice to have 15 years remaining on the lease with the tenant when the loan term expires and that investor is looking to refinance.

Due to the current lending environment, securing financing on net lease investments today is easier on properties with investment grade tenants and long-term leases, and nearly impossible for those properties involving tenants that are struggling or have very little lease term remaining.

Finally, an attractive bonus for the net lease investor is to have rent escalations built into the current lease term. Most investors believe that inflation will become a problem in the next three to five years due to the enormous growth in federal spending; therefore they want rent bump-ups in the lease to combat those anticipated hikes in operating costs.